Israel looks to Texas as promised land for energy investment

2of2The Israeli city of Tel Aviv is on the shores of the Mediterranean Sea. The discovery of major gas fields deep below the Mediterranean off the country's coastline will allow Israel to begin exporting natural gas for the first time. ﻿Photo: JACK GUEZ, Staff

For decades, Israel scoured its deserts and seas for hidden reservoirs of oil and gas that could wean the country off exports from often unfriendly neighbors.

It was a long-running Israeli joke: Moses delivered the Jews to the only place in the Middle East with no oil or gas. The country had all but resigned itself to a future of electricity shortages and high-price gasoline until a Houston-based independent oil company took a crack at the search and struck pay dirt.

Noble Energy's discovery of major gas fields deep below the Mediterranean Sea off the country's coastline changed Israel's energy landscape and will allow the nation to begin exporting natural gas for the first time in its history.

But Noble remains the only U.S. exploration and production company taking advantage of Israel's vast new opportunities.

Now hoping to lure others, Israel is searching for inspiration and expertise in Texas, the headquarters of its energy benefactor and the epicenter of the United States' own oil and gas renaissance.

"Ultimately, Texas is the hub of the global oil and gas industry," said Joshua Beagelman, who is organizing the nation's first international oil and gas conference in the fall.

Noble's big finds gave Israel its first real chance at energy independence, said Meir Shlomo, Israel's consul general in Houston, but the vast new supplies of natural gas also forced the country to confront thorny issues that crop up with a new energy economy.

Texas, with its long history of oil booms and busts, offers a wealth of expertise for a country new to the energy game, Beagelman said in an interview with the Chronicle.

The state is home to many companies with experience extracting fossil fuels from diverse and difficult environments, and much of the new technology used to ignite the U.S. shale boom was pioneered in Texas, Beagelman said.

And Shlomo noted that Israelis and Texans both have reputations as no-nonsense deal-makers.

"We mean what we say and we say what we mean," he said. "It's very easy to do business in this type of environment."

As Israel grapples with an influx of commercial gas and the prospect of exporting energy for the first time, the government has been pursuing U.S. companies to explore the two key offshore plays where Noble struck it big: the Tamar and the Leviathan.

Noble and Israeli oil company Delek Energy jointly discovered the Tamar gas field in 2009 and began production four years later, boosting the country's gross domestic product by half a percentage point in less than a year. A Tamar production platform, built in Corpus Christi, is taller than Israel's tallest skyscraper, Shlomo said.

An even larger find emerged in the Leviathan field, about 80 miles off Israel's coast. The 2010 discovery was the world's largest for that decade, with the potential to hold as much as 19 trillion cubic feet of recoverable natural gas, according to the U.S. Energy Information Administration. Noble Energy says those estimates have been revised upward to 22 trillion cubic feet. It expects to begin producing gas there by early 2018.

100 years of energy

"To put this into a bit of context, the combination of the Tamar and Leviathan gas is enough to supply Israel for roughly 100 years at their current demand," said Keith Elliott, Noble's senior vice president for the Eastern Mediterranean.

The finds have been a boon for Noble Energy, helping the company double in size in five years.Elliott said that while the company isn't actively seeking partners, it welcomes competitors who can bring new ideas and concepts to the country.

"There's always a bit of iron-sharpening-iron," he said.

But while Noble holds some of the largest positions in the Tamar and Leviathan fields, Israel has strict antitrust laws preventing companies from gaining monopolies. Against that backdrop, Israel has purposefully left open opportunities for other companies to secure licenses to explore and produce its large offshore gas fields.

"Suddenly, we discover oil and gas, and nobody knows what to do with it," said Michal Niddam-Wachsman, Israel's consul for economic affairs in the U.S. South. "What we need is partners with expertise on where to drill, how to drill and how to do it well. ... That's what Israel is looking for in the Texas market."

The economic consul historically has promoted Israel's well-known high-tech industries, but Niddam-Wachsman now spends an increasing portion of her time trying to drum up enthusiasm about the country's oil and gas potential.

Although she declined to name them, Niddam-Wachsman said she's met with high-ranking management and key decision-makers at numerous local oil and gas companies.

Event in Houston

Last year she booked Israel's first booth at Houston's Offshore Technology Conference, the big annual gathering of key players in international oil and gas.

Recently she's been hyping Israel's international oil and gas conference, scheduled for November at the David Dead Sea Resort & Spa Hotel.

The event has attracted a delegation of Texas officials, including Barry Smitherman, chairman of the three-member Texas Railroad Commission, which regulates oil activity in Texas. Delegation members plan to meet with key Israeli energy officials from the public and private sector.

As they make their pitch, Israeli officials argue that while the country may seem unproven, it is far more stable than other emerging oil and gas markets plagued by corruption, political strife and nonexistent tax codes.

"We're one of the few countries where Americans feel very welcome, in every sense of the word," Shlomo said. "It's a very stable democratic country with clear rules where everyone speaks English."

Niddam-Wachsman said that beyond the country's untapped reserves, U.S. oil companies, especially those working in drought-stricken shale plays, could benefit from the innovative water conservation technologies like desalination that Israel has pioneered and perfected.

Arab neighbors

While some U.S. companies have expressed interest, none has committed to Israel, a reticence that Niddam-Wachsman attributed in part to American oil giants' concerns about upsetting their longtime partners in Arab countries.

The U.S. shale boom also may be thwarting Israel's ambitions. As advances in drilling technology and well completion unlock vast new supplies of oil and gas, U.S. companies may prefer to bet on a domestic energy market with established policies and regulations rather than sink their money into an environment with newly crafted rules, Niddam-Wachsman said.

Those rules need tweaking, Beagelman said, arguing that Israel's complex regulatory structure and lack of clarity have hampered the country's ability to attract international interest. Israel recently created regulations to govern natural gas exports but has not defined its rules for oil. The country also has many regulators - Petroleum Commissioner, the Israel Antitrust Authority, the Ministry of Environmental Protection - all operating under different mandates.

Beyond its drilling expertise, Texas can offer Israel lessons in how to clarify its rules to attract investment, Beagelman said.

"Why reinvent the wheel?" he asked. "Why not look at a market with a proven track record and try to adopt that policy and incorporate the strengths of that policy into your system?"

Elliott, of Noble Energy, said it's a matter of time before others recognize Israel's potential.

"It's early days," he said. "We've been here 15 years, and the scope and scale of the potential of this basin was really not recognized up until five years ago. Five years is not a long time in our industry."